WHA A/S SHANNON'S MEETINGS WITH JAPANESE TRADE

C O N F I D E N T I A L SECTION 01 OF 03 TOKYO 003162

SIPDIS

E.O. 12958: DECL: 11/16/2015
TAGS: ETRD PREL JA
SUBJECT: WHA A/S SHANNON'S MEETINGS WITH JAPANESE TRADE
OFFICIALS, BUSINESS LEADERS

TOKYO 00003162 001.2 OF 003


Classified By: Assistant Secretary Thomas A. Shannon for Reasons 1.4 (b
),(d)


1. (C) SUMMARY: Japanese businesses and trade officials told
Western Hemisphere Affairs Assistant Secretary Thomas A.
Shannon they continue to see long-term growth potential in
Latin America, particularly in Brazil, Mexico, Colombia and
Peru, despite possible short-term negative effects on the
regional economy due to the global financial situation.
Building on the positive experience of free trade agreements
with Mexico and Chile, they said Japan will continue to
pursue greater economic integration with the more mature
emerging markets in Latin America. Meanwhile, resource
necessity is driving Japanese investment in Venezuela. Both
business representatives and GOJ officials observe a
convergence of U.S. and Japanese interests and approaches in
the region. END SUMMARY.

--------------
REGION GENERALLY WEATHERING FINANCIAL CRISIS
--------------


2. (C) Representatives of leading Japanese companies in Latin
America were generally optimistic about the region's economic
prospects during a breakfast meeting with Assistant Secretary
Shannon October 14. Honda Corporation's Deputy General
Manager for Policy Coordination, Naofumi Sakamoto, said the
region's widening middle class, especially in Brazil, will
contribute to longer term economic growth. Sakamoto also
noted the presence of a sizable population of Brazilian- and
Peruvian-Japanese that is both a consumer of Japanese goods
as well as a human resource for Japanese companies. While
noting a potential decline in consumer demand in the
short-term as lending slows in the wake of the global
financial situation, Sakamoto said that the region's
experience with past financial crises has led counties to
adopt more stable economic policies while also appreciating
the value of participating in the global economy; a trend not
as apparent in emerging economies elsewhere. Mitsui
Corporate Planning and Strategy Division Deputy General
Manager Hajime Tonoki echoed this sentiment, saying that the
real economy, particularly in Brazil, "does not necessarily
track with global financial markets." Tonoki said Japanese
trade and investment in the region now revolves around four
areas:(1) mineral resources; (2) foodstuffs; (3) building the
regional consumer market; and (4) infrastructure development.
He added, the conclusion of bilateral agreements is the key
to regional economic growth now that the Doha Round of trade
talks has collapsed.

--------------
DIFFICULT TO COMPETE WITH CHINA INC.
--------------


3. (C) Both businessmen cited competition from China as a key
challenge to Japanese business success in the region. In
Honda's case, Sakamoto explained in Brazil his firm targets
the middle class with relatively higher end motorcycles,
while China has made inroads into the low-end consumer market
with cheaper, inferior quality products. However, Sakamoto
explained the poor quality control of Chinese goods threatens
to tarnish the reputation of foreign-made motorcycles in
general and thus could weaken demand across the industry. In
addition, Sakamoto said Chinese imitators undermine Honda's
brand, and he urged the U.S. to continue to push for stronger
enforcement of intellectual property rights in its dialogue
with regional authorities. Tonoki noted Japanese firms
engaged in steel-making and other materials processing have
difficulty competing with Chinese state-backed firms. He
also said he has called upon the countries in the region for
greater investment transparency.

--------------
TOWARDS AN EXPANSION OF FREE TRADE
--------------


4. (C) Building on the success of its early economic
partnership agreements (EPA) with Mexico and Chile, Japan
will continue to pursue trade liberalization in emerging
markets, including those in Latin America, according to
Ministry of Economy, Trade and Industry Trade Bureau Director
General Hideichi Okada. Okada said METI Minister Nikai
recently called for a review of Japan's global trade
strategy, stressing the need to move beyond Asia to target

TOKYO 00003162 002.2 OF 003


emerging economies in Latin America, the Middle East, and
Africa, and Russia. Okada noted the particular importance of
Brazil to Japan, which Nikai's predecessor as trade minister
visited in July 2007: the first such METI minister-level
visit in 25 years. Japan and Brazil agreed to a trade and
investment committee during that visit, and this committee
will have the first meeting in November. While Japan is not
in a position to conclude a comprehensive EPA with Brazil at
present, Okada said, the countries are cooperating in various
areas such as bio-ethanol and semi-conductor development.


5. (C) Japan is also in the final stages of negotiating a
bilateral investment treaty with Peru, which Okada said will
hopefully be announced in time for the November APEC summit
in Lima. Okada said with EPAs with Vietnam, Switzerland, and
India near completion, journalists frequently ask who will be
next, and he offered Colombia and Peru as potential
candidates. He noted the USG's September 22 launch of
negotiations with the P4, and said Japan and USTR seem to be
"thinking similarly" as far as supporting expansion of free
trade in the Pacific with the P4 or ASEAN 3, with the
eventual goal of a Free Trade Area of the Asia-Pacific.

--------------
PROSPECTS OF VENEZUELA AND THE LATIN LEFT
--------------


6. (C) Okada said Japanese firms are interested in petroleum
development in Venezuela, and Japan recently signed an MOU
for exploration in the Orinoco River delta with PdVSA. A/S
Shannon told Okada the U.S. also has substantial investment
in the Venezuelan petroleum industry and Venezuela relies
heavily on the U.S. to refine and distribute its petroleum
products. As a result, Chavez's anti-American rhetoric does
not reflect market reality.

--------------
DG Kitera
--------------


7. (C) International Cooperation Bureau Director General
Kitera briefed A/S Shannon on Japan's policies toward
countries in the WHA region with respect to official
development assistance (ODA),noting that despite economic
growth in much of the region, countries such as Nicaragua,
Honduras, and Guatemala still actively seek out Japanese ODA.
"Unfortunately," he said, "budget pressures have reduced ODA
to less than 40 percent of what it was just 10 years ago,
with the result that Japan can no longer make everyone
happy." ODA for WHA countries is also being squeezed by
former Prime Minister Yasuo Fukuda's pledge at the recently
concluded TICAD IV Summit to double ODA to Africa over the
next five years. "If we can't get more money for the ODA
budget," Kitera lamented, "we will have no choice but to look
for efficiencies, make difficult choices, and cut aid
elsewhere." He spoke wistfully of his experiences in the
Bureau in the 1990's, when Bolivia's international airport
was considered a "masterpiece" of Japanese grant assistance.



8. (C) A/S Shannon expressed appreciation for close
consultations with Japanese counterparts over the past
several years and stressed the importance of continuity of
approach of the United States and Japan to the region.
Noting that U.S. and Japanese assistance in the region is
often complementary, he praised Japan for working with the
United States and other democratic partners to demonstrate
our shared agenda and send a positive message. At the same
time, he asserted, Japan must look for programs where it can
have the greatest impact. Shannon urged Japan to learn from
the U.S. experience of the 1990's and be more strategic about
decisions to refocus limited ODA resources. He regretted the
way the United States had opted to cut programs across the
board, making it seem to some countries as if the United
States had simply walked away. Japan's decisions on ODA
could have a similar impact on how Japan is viewed by
recipient countries, he cautioned. Shannon also briefed
Kitera on the just-concluded "Pathways to Prosperity"
economic partnerships, saying he hoped to begin a dialogue
inside the group on widening trade with Asia. He cited this
initiative as evidence of the critical role that trade can
play in economic development.


9. (U) Assistant Secretary Shannon has cleared this message.

TOKYO 00003162 003.2 OF 003


SCHIEFFER